Another day of disappointment for the bulls today on Wall Street, as after being hit hard the past two days, they tried to rally a bit today but once again couldn't get much going. Stocks started basically flat, but fell in the first hour with the Nasdaq coming close to its former breakout level and the S&P testing its 200 day moving average. They did bounce from there through lunchtime and into the early afternoon. Things looked good at that point, but the bulls couldn't keep any momentum going, and drifted back down from about 2:30 on, with only the Nasdaq finishing with a gain for the day. Volume looks to be a bit heavier than yesterday but still well below average - I don't have the final totals yet.
Technically, it is good that the Nasdaq held above that 1775 area and also closed slightly above its 20 day moving average. It remains the index in the best technical shape. However, more selling and a break of that 1775 level will take it likely down to the 1730 area. That scenario would form a pretty clear left shoulder and head for the Nasdaq, and a bounce back from there could be the start of a bearish right shoulder. The S&P did close slightly above its 200 day moving average, but similar to the Nasdaq, any further selling would take it down to the 875-890 area and complete a possible left shoulder and head pattern.
We are pretty oversold in the short-term and I am expecting a bounce soon on the major indices, especially with this week being options expiration. On the S&P, I will focus closely on how it handles the 930 area if it gets that high. If the bulls can push it over that, then maybe this pullback was nothing. If it can't get past that level, then we are likely looking at a major top being put in.
Among many other things that have me thinking "top" here is the intraday action of the past two days. I think we have seen a change in character - for the first time in a while, dip buyers have not been out in force the past few days. Before this week, every dip the market had intraday was bought heavily by the bulls and they ended up pushing prices back up into the close. This week, they really haven't been able to do that at all. It has been a subtle change that I am thinking is important to watch.
After going through my scans last night, I began to see a lot more potential short setups occuring. I'll be honest - this may just be my bias skewing the way I look at charts. But particularly in the retail sector, I saw many stocks forming clear head and shoulders patterns(check out FL and FINL) , while I also saw many charts that had the shoulder and head formed, just needing to complete that right shoulder(check out UA, CTRN, COG, OXY, HON, GPS, and DBRN to name a few). Finally, I saw some big names like GE, GS, and WFC show some weakness today - that is also not good. There were a few charts that showed some strength today (SYNO, PAR, and CVGW) but overall the quality of longs I see is still way below what I saw last week. I will try to get a video out over the next few days to go over these charts.
I am still in cash and plan on staying that way for the rest of this week. I think the next few days and maybe the next few weeks will be choppy as the bulls try to fight back here and the bears try to establish control of things. If you really want to play a short-term bounce, I think you may have your chance over the next two days, but overall, I just get the sense things are changing here. I could be wrong of course, but it will take the bulls overcoming 930 on heavier volume to convince me things are OK once again. Until that happens, I think defense is the name of the game, and I will continue to watch for short setups. The more that pop up, the more bearish I will become. Take care, and good luck Thursday.